Business energy contract options: Fixed, flexible and beyond
28 March 2025 | 4 minutes
Learn the differences between fixed and flexible business energy contracts and how to identify the type best suited to your organisation.
When it comes to deciding what type of energy contract suits your business, there can be a lot of things to consider, including managing costs and risks and whether to focus on renewable energy as part of a decarbonisation strategy. Greg Kavanagh, Head of Industrial and Commercial Sales at Shell Energy, explains different contract types, the benefits of each and which renewable energy options Shell Energy offers its UK customers. 1
Fixed price contracts
Energy contracts are made up of commodity costs (a unit charge per kilowatt hour (kWh) for the energy itself) and non-commodity costs (costs related to the infrastructure, transmission, distribution of electricity or gas, plus various regulatory charges). A fixed price contract wraps all the charges into a fixed unit rate and a standing charge for the length of the contract regardless of changes in the market price of energy. The standing charge is a per day charge that includes the supplier’s management fee, some distribution charges and the customer’s metering costs. Fixed price contracts offer cost certainty and budget clarity and as a result are popular with smaller businesses. However, although they give price certainty, choosing a fixed price energy contract removes the possibility of taking advantage of favourable energy price drops.
Flexible purchasing contracts
Flexible purchasing contracts allow businesses to purchase energy at various points throughout the duration of their contract, even before their supply start date Choosing a flexible purchasing contract can help business energy consumers avoid the risk of locking-in a unit price for the contract term while the market is high. Flexible purchasing contracts also provide an opportunity to take advantage of lower prices when the market falls. This option typically suits businesses with a high energy spend, usually over £1m a year, or those seeking direct market access to help manage the cost of their energy. Depending on the type of flexible purchasing product you choose, your supplier may charge a lower management fee because of reduced non-commodity risk premium costs and/or by not offering any ‘volume tolerance’. Volume tolerance is a bracket commonly set at 80-120%, which means that a business can use 20% more or less energy annually than was originally agreed for the contract period. The volume tolerance charge is then activated when a business goes above or below this level.
At Shell Energy in the UK, our flexible purchasing contracts enable businesses that consume over 10 gigawatt hours (GWh) per year to purchase energy in monthly, quarterly or seasonal blocks and we are preparing to launch ‘within month’ purchasing options later this year. With a variety of flexible contract options available, it is important to understand what key features your business requires from a flexible energy supply contract.
Pass-through options
For businesses that want to leverage the potential energy price control advantages of flexible contracts, we also offer various options for managing their non-commodity costs. A simple and popular option is to agree a contract where these non-commodity costs are charged on a ‘pass-through’ basis where the supplier simply charges the customer what they themselves have been charged for these costs. A key benefit of pass-through contracts is that businesses can avoid the costs of non-commodity risk premiums, which are typically added to flexible contracts to cover any unexpected spikes in systems, networks or regulatory charges. However, for those customers who require a greater degree of budget certainty we also offer the ability to fix the system and network charges or Government charge elements of their non-commodity costs; or both. As Shell Energy, we offer the following options in the UK:
All non-commodity costs are charged on a ‘pass through’ basis, and so are variable at an ‘at cost’ rate.
Charges relating to systems and networks are fixed, while Government charges are passed through.
Charges relating to Government charges are fixed, while systems and network charges are passed through.
All non-commodity costs are charged at a fixed rate agreed before the contract starts.
In summary flexible price contracts tend to suit larger businesses with a higher energy spend, than those businesses that typically use under 10GWh per year and who are likely to prefer fixed price contracts.
Embracing renewable energy options
The transition to a lower-carbon future requires a range of solutions. Whichever contract type best suits your business, Shell Energy offers options that can help your business to decarbonise. Our renewable energy is backed by UK-certified renewable certificates of origin, which match any energy you buy from us with the equivalent number of units from 100% renewable sources. We can help your business to achieve its decarbonisation goals through:
100% renewable electricity via Renewable Energy Guarantees of Origins (REGOs) – either wind, solar, hydro, biomass or a mix. We also supply RE1002 compliant REGOs.
100% renewable gas/ biomethane via Renewable Gas Guarantee of Origins (RGGOs).
Energy options for a range of businesses
Shell Energy benefits from the wider Shell businesses global energy solutions and can help our customers meet the energy needs of today and tomorrow. With Shell Energy, you will be working with an established business energy provider and gain access to our decarbonisation and energy management expertise.
If you have any questions or would like to know more about how we can work with your business, reach out to one of our Shell Energy experts today.
1Shell Energy’s renewable electricity is supplied by the National Grid and certified by Renewable Energy Guarantees of Origin (REGO) certificates, matching electricity bought with the equivalent amount from 100% renewable sources. Shell Energy’s renewable gas is certified by the Green Gas Certification Scheme (GGCS). Through the use of Renewable Gas Guarantee of Origin (RGGO) certificates, a scheme which matches each unit of gas used by a Shell Energy customer with an equivalent amount of biomethane (a gas considered by the GGCS to be green), that has been placed into the grid. For further information on this certification scheme, please see http://www.greengas.org.uk.
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